New equity, reforms help Indian banks' Basel III goals

Equity-raising by Indian banks in the last couple of months is the first step in the sector's transition towards Basel III requirements, Fitch Ratings says.

As the sector enters the phase of transitioning into the Basel III-based capital regime (April 2013- March 2018), the banks need stronger access to the capital market to support growth and to meet the higher capital requirements being phased in. New investor-friendly reforms could support this if these trends continue.

The fresh capital raised by private banks should fund credit growth and give the banks an early start in meeting the Basel III requirements. IndusInd Bank issued Rs20 billion in December 2012, improving its Tier 1 ratio to 14.85 per cent at end-2012 (including nine months of profit).

Axis Bank boosted its equity base by 20 per cent through an RS55 billion capital placement in January 2013.

The banking system needs a strategy to achieve Basel III compliance - despite the transitional requirements being largely back-loaded, with over three-quarters of the additional regulatory core capital arising in 2016-2018.

The Reserve Bank of India estimated additional capital requirements for private banks to be in the range of Rs200 billion to 250 billion ($3.6 billion - 4.6 billion).